PRIVATE INVESTORS have made stunning profits of more than 1,000% during the credit crisis by betting that share prices will fall. However, some UK stocks have beaten the turmoil with gains of almost 180%.

Markets have suffered their worst quarter for five years, with the FTSE 100 share index down 12%, the poorest three-month performance since the third quarter of 2002.

Many investors have watched in dismay as the value of their funds has slumped; the average UK unit trust and pension fund has dropped 6% over the past three months.

The brave, however, have made big profits by using spread-bets, contracts for difference (CFDs) and fixed-odds financial bets. These tools, which enable you to “short-sell” – or make money by betting that shares will fall – were once the preserve of hedge funds and are not without their critics. Short-sellers have been blamed for the rumours that led to a 17% drop in the share price of HBOS, Britain’s biggest mortgage lender, last month.

However, the techniques are now being exploited by a growing number of ordinary investors – with some spectacular results. Joe Paterson from Fulham, southwest London, made a £25,500 profit betting that the share price of the banking giant Citigroup would plunge earlier this year. His winnings represent a 1,020% return on his original £2,500 bet.

Paterson, 24, a sales and marketing manager, said: “During the credit crisis I have been focusing on banking shares. I also made good profits betting that Barclays would fall but sadly missed Northern Rock.”

Trading in CFDs has jumped by 292% over the past year, and it’s not just City professionals who are taking advantage.

Roy Camps, a self-employed painter and decorator from Witney in Oxfordshire, has taken to trading CFDs in winter. He said: “I could spend the winter months shivering on a building site or sitting in the comfort of my home and trading the markets. It’s not without risks. Overall this winter I’m about even in terms of profits and losses, but I have had big suc-cesses: I made £6,500 in 20 minutes betting that the dollar would weaken against the Swiss franc.”

Investors should be under no illusions about the risks. Only one in five spread-betters makes money, according to research by City University’s Cass Business School. However, there are things you can do to limit losses. Firms allow a “stop loss” that closes the bet if it moves against you.

If this sounds too risky, or complex, it is still possible to make money trading shares in the conventional way.

Although the FTSE 100 has dropped 12% since the market’s peak about nine months ago, a closer look reveals that about a quarter of stocks are worth more today than they were then.

The winner in the FTSE All-Share index is the oil-equipment supplier Wellstream Holdings, up 177% over the past nine months. In the FTSE 100, Cairn Energy, also an oil explorer, is top with a 65% gain. The brewer Scottish & Newcastle is up 25% and defence group BAE Systems has risen 23%.

Henk Potts at Barclays Stockbrokers said: “The mining sector has hugely outperformed the broader market over the past nine months as emerging markets continue to demand ever-increasing amounts of commodities. Oil stocks and related industries have also performed well.”

But which shares are tipped for success now? We asked City fund managers and analysts to pick the companies they think can still make money.

British American Tobacco

Tobacco stocks are renowned for their ability to do well when markets are falling because they have strong brands, consumers continue to buy cigarettes even when conditions are tough and they are committed to growing dividends. BAT is favoured by Richard Hunter at Hargreaves Lansdown Stockbrokers: its shares have gained 19% over the past year to stand at £18.92 with a yield of 3.5%.

Vodafone

Investment banks say that companies paying good dividends have a better chance of withstanding further turbulence. Last year, Vodafone, the world’s biggest mobile-phone company, increased its dividend by 11% to 6.76p and yields 4.3%, which is high for a former growth stock. Morgan Stanley, the investment bank, expects it to raise its dividend by 10% a year until at least 2010. The shares have gained 15% over the past year to 159.20p.

Land Securities

Property stocks have taken a pounding over the past year: Land Securities is down 29% from £21.61 to £15.44. However, Nick Raynor at the Share Centre, a stockbroker, said: “The decision to split up the £15 billion Land Securities property portfolio into three separately quoted businesses should prove attractive. Due to the ongoing market volatility, this should be seen as a long-term investment but is still a worthwhile buy.” The shares are yielding 3.4%.

Reckitt Benckiser

Raynor also recommends Reckitt Benckiser, the world’s largest household cleaning-products group, which owns brands such as Vanish and Harpic. “The company’s strategy is simple and well executed,” he said. “As long as its core products remain strong, the constant stream of innovations should keep sales moving upwards.” The shares have gained 6% over the past year to £28.10 and are yielding 2%.

Thomas Cook

The global economy is slowing, household costs are rising and oil prices are high. It doesn’t sound like a good time to back a travel group such as Thomas Cook. But David Cumming at Standard Life said: “The negative effects of higher fuel prices and pressure on consumer spending will be more than offset by management actions to turn round the business.” The shares have dropped 4% over the past year to stand at 299p and now yield 1.9%.

SHORTING EXPLAINED

CONTRACTS FOR DIFFERENCE When you trade CFDs you agree to receive the difference between the price when the contract is opened and the price when it is closed. If you think the value will rise, you go ‘long’. If you think it will fall, you go ‘short’.

Say you thought shares in a company were about to drop and took out a CFD to go short of 1,000 shares at 100p. The contract value would be £1,000, but you would put down only about 20%. If you closed the contract at 95p, the difference in price would be 5p and you would make £50. If it rose to 120p, you would lose £200.

SPREAD BETS When you spread bet, the bookmaker will quote you a spread for a share or the level of an index or asset at a given date, and you bet on how far you think it will move above or below the spread.

Last week CMC Markets was quoting 5,933 to 5,936 for the FTSE 100 in June. If you thought it would beat that, you could bet £10 a point above 5,936. If you wanted to short-sell, you could bet below 5,933. If the Footsie finished at 5,900 and you had bet on it falling, you would have made £330 (£10 times 33). If you had closed the bet at 6,000 you would have lost £670.

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